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Competencia y Toma de Riesgo en el Mercado de Créditos de Consumo Bancario Chileno (1997-2009)

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  • Daniel Oda
  • Nancy Silva

Abstract

The purpose of this paper is to estimate a new index of competition for the banking industry—the Boone indicator—which allows evaluating the level of competition in specific segments of credit, in our case, consumer credit. Additionally, it is intended to determine whether the evolution of this indicator has been associated to a higher degree of risk taking. A novelty of our approach is to consider loan loss provisions as part of the total cost function for bank credit generation. The evolution of the Boone indicator shows a low level of competition between 2003 and 2005. In 2006, competition increased strongly, recovering levels statistically similar to those in the beginning of the period of analysis. This might originate in the development of those banks associated to the retail sector and consumer units of traditional banks, as well as in a process of more aggressive incursion of banks in lower-income customer segments (known as “bancarización”). The relationship between credit risk and competition in this segment of credit is not stable in time. Estimations show that, in the period of the highest increase in competition, the relationship between the Boone indicator and the non-performing loans index is negative and statistically different from zero, which indicates that the rise in competition was indeed associated to higher risk taking.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 562.

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Date of creation: Mar 2010
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Handle: RePEc:chb:bcchwp:562

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  1. van Leuvensteijn, Michiel & Bikker, Jacob A. & Van Rixtel, Adrian & Kok, Christoffer, 2007. "A new approach to measuring competition in the loan markets of the euro area," Working Paper Series 0768, European Central Bank.
  2. Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
  3. Molyneux, Phil & Lloyd-Williams, D. M. & Thornton, John, 1994. "Competitive conditions in european banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 445-459, May.
  4. Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-51, June.
  5. Adolfo Barajas & Leonardo Luna & Jorge Restrepo, 2007. "Macroeconomic Fluctuations and Bank Behavior in Chile," Working Papers Central Bank of Chile 436, Central Bank of Chile.
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